Trauma insurance is often the missing piece in the insurance puzzle. To protect yourself adequately, writes Dave Slovinec, it’s a form of cover that needs to be considered.

If a serious illness befalls you, what will your financial situation look like? It’s an uncomfortable question that, nevertheless, requires serious consideration. For all of us, the best financial defence against unexpected health events is the right combination of cover. Too often, however, people don’t see the gaps until the bills start rolling in. In many of these cases, trauma insurance is the missing piece of the puzzle.

What is trauma insurance?

Trauma insurance provides benefits on the event of a serious illness or injury. Also known as critical illness insurance, it pays out a lump sum whether you are able to continue working or not. What you spend this one-off payment on is up to you. You might need to modify your home, pay for medications not included within the PBS (Pharmaceutical Benefits Scheme), pay for specialist treatment or cover the income of your partner who needs to take time off work to provide care. You could even spend it on a new car or pay off the mortgage. There are no strings attached – it’s entirely up to you.

What does trauma insurance cover?

The specific illnesses and injuries this type of insurance covers depends on the particular policy you take out. Generally, trauma insurance pays out in the case of:

• A cancer diagnosis
• Stroke or heart attack
• Major head injury

It’s important to note that trauma insurance does not cover mental health conditions.

What’s the difference between trauma insurance and TPD?

TPD (total and permanent disability) insurance pays out in the event you become permanently disabled and are never able to return to work. Trauma insurance, on the other hand, only requires that you are diagnosed with a serious injury or illness. It doesn’t matter whether you are able to return to work at some point or if you never had to take time off. 

The claims process can also be more straightforward. TPD insurance requires statements from two medical professionals that you will never again be able to work, whereas trauma insurance may only require a medical diagnosis.

Why trauma insurance is important – even in Australia

In 2015/16, health expenditure in Australia reached $170 billion. Of this, $30 billion was shouldered by individuals and families – twice what private health insurers fund. We may have a world-leading healthcare system, but that doesn’t protect us from significant out-of-pocket expenses when we suffer serious injury or illness. It’s also worth noting that that $30 billion relates to direct expenditure; it doesn’t take into account indirect costs such as loss of income.

A recent whitepaper exploring the true cost of healthcare in Australia lays bare the financial risks of not having the type of cover trauma insurance provides. For instance:

• Prostate cancer is the most common cancer among Australian men. There are nearly 50 new cases every day. The average out-of-pocket expense in the first year is $11,077, but this can reach $30,000. The money typically goes toward specialist fees, medical equipment and medicines.
• Breast cancer is the most common cancer among Australian women. As with prostate cancer, there are around 50 new cases every day, as well as eight deaths. OOP expenses can climb to $17,200, but the more significant statistic is that median paid hours worked each week across the household drops by 50% during treatment.

I have private health insurance, TPD and income protection insurance. Isn’t that enough?

Between Medicare, private health insurance, income and TPD protection, you’d be forgiven for thinking you have all bases covered. Obviously, a lot depends on the private health policy you have, but no matter how comprehensive it is, there are always gaps that a major injury or illness can expose you to.

To a large degree, trauma insurance is about protection against indirect expenditure. Loss of income is a huge risk when our health is so drastically compromised. Income protection typically only provides 60 to 75 per cent of your salary and TPD is only claimable if you can never return to work. Medications are expensive, as are specialists and radical treatments. If your partner has to take time off work to look after you, can your household continue running on 70 per cent of your salary? Can you still make the mortgage payments, pay for your kids’ education, buy groceries?

A lump sum payout from trauma insurance doesn’t only provide money for considerable out-of-pocket costs and indirect expenses; it also provides invaluable peace of mind.

Talk to us about your health care protection

Deciding whether trauma insurance is right for you or what level of protection you might need isn’t always a straightforward process. There are many things to consider. How much income would you and your family need if you couldn’t work for a given period? What other insurance policies do you currently have? Does your work or lifestyle expose you to certain health risks? What support could you depend on from friends and family?

Talking to a financial adviser is the best way to know what’s appropriate for you. At Pride Advice, we’ll take a look at the complete picture of your healthcare cover and determine what you need so you can rest assured that if tragedy strikes you’ll have sound financial cover.